News and commentary about road pricing across the globe. Tolls, congestion charging, distance based charging, road user charging. Public policy, economics, technology and more. If Google brought you here, look down the right sidebar for references.

Wednesday, 18 April 2012

Today is the closing date for public submissions on the proposals to introduce a truck (over 12 tonne) road charging scheme in the UK.

Submissions can continue to be made on the UK Department for Transport website here, with online forms. I reported on the proposals before here, but in summary the intention is to introduce a vignette system involving pre-purchase of access rights to the highway network based on multiples of 1 day, 1 week, 1 month or 1 year as follows:

- It would be required for access to all public roads in the UK;

- It would apply for goods vehicles of 12 tonnes or over;

- It is not part of the Benelux/Danish/Swedish Eurovignette system;

- UK registered vehicles liable will have their vehicle excise duty reduced commensurate to the price of an annual vignette (although a small proportion will pay more);

- Revenue will not be hypothecated for highways expenditure;

- Vignettes will not involve stickers or labels, but will be an electronic record of payment enforced by Automatic Number Plate Recognition technology (similar to the E-Vignette in Hungary).

In my view, it is a simple system designed to capture the small proportion of foreign lorries that are prevalent in the South-East of England, and will generate a small amount of revenue, and have a small positive effect on the competitive neutrality of UK vs Foreign haulage firms (the Ireland-Northern Ireland situation may be more interesting).

An interesting dimension to the consultation is the question about distance based charging as an alternative.

These are:

- What do you consider to be the likely advantages and disadvantages of a charging system based on distance travelled (as in Germany) as opposed to a time-based charge?

- If a distance-based charging system were adopted, should it apply to all roads or only certain categories of roads?

- Would you prefer a distance-based system even if this meant large cost increases or UK operators?

(Yes that was a typo it should be "for" not "or" - shame upon the Department for neglecting this))

From an economic efficiency perspective, I am a strong advocate of distance based charging, but it would open up the hornets' nest of refunding fuel duty in the UK - which I can understand the Treasury would be against. Vignettes plug an issue with foreign lorries, but little else. It is a mere transfer from vehicle excise duty to vignettes for UK hauliers, it does not address the cross-subsidies that mean that short haul lighter lorries proportionately pay more - relative to the road wear and tear they generate, to the longer haul heavier lorries.

The implication is that a distance based system should necessarily mean large cost increases. It is perfectly feasible to design a system and charging table that simply reallocates the revenue currently collected amongst vehicle classes, and then addresses the issue of collection costs. Yes, ANY form of direct charging of users will cost more than taxing some proxy for it. It would be cheaper to tax people buying appliances than to bill their electricity usage, but the big gap is the economic distortions caused by existing forms of taxation (see the post below on the NSW Financial Audit).

Strangely, the UK government is keen to analyse indirect economic benefits and the more amorphous and controversial concept of "wider economic benefits" to justify support for a £15.8 (US$25.3) billion high speed railway. Yet similar analysis has not been done of the costs and benefits of existing forms of motoring taxation relative to road pricing.

That is the gap in the current policy analysis around motoring taxation in the UK today.

Saturday, 14 April 2012

The Sydney Morning Herald reports that the former NSW Treasury secretary Michael Lambert has been conducting an audit of the state's finances for the recently elected (one year ago) Liberal/National coalition (centre right) administration (which has followed a 16 year long Labor administration). His work was finished last year, but received little attention, apparently because the state government has lost interest in reform.

One of his key findings was that "vehicle taxes" be replaced with a Sydney wide congestion targeted urban road pricing scheme, which would apparently generate economic benefits of A$720 million (US$747 million) per annum through reduced delays. The news report says nothing more, but the complete report on public finances in New South Wales is available on the NSW Treasury website here. There is much excellent analysis here for anyone interested in public finances.

What does the report say?

The relevant sections are in Chapter 13, and is worthwhile reading for those who still think that vehicle ownership taxes and fuel taxes are optimal ways of charging for road use.

The report analysed the "excess burden" of taxes, being the cost of taxes to the economy, over and above the revenue acquired by the government. These costs are deadweight losses in reduced economic activity because of the loss of consumer welfare from the higher price of what is taxed.

Taking those costs, administrative costs and the wider economic costs and benefits of different ways of charging road vehicles produces some fascinating conclusions.

Vehicle registration tax creates an excess burden of A$474 million (US$492 million) per annum for the state, which is a loss of 25% of the value of the revenue collected from it. Remember that, because that loss is what can be theoretically abolished with economically efficient road pricing.

The report proposes replacing taxes on vehicle ownership with a state-wide flat rate distance road user charge, with charges in Sydney varying by time and location so that congestion could be targeted. The light vehicle charge would be A$0.04 per km (US$0.07 per mile). Sydney roads would, at certain times (i.e. peaks and interpeaks), have a congestion surcharge of between A$1.15 and A$3.83 per km (US$1.91 and US$6.39 per mile).

It calculated that the net economic welfare gain for the state would be A$662 million per annum (US$687 million). Another A$5 billion per annum (US$5.2 billion) is saved from reduced congestion and road maintenance costs.

A$780 million (US$810 million) of revenue alone could be generate by tolling the existing untolled portions of Sydney's orbital motorway network, using existing average prices, with peak and offpeak rates.

A national (beyond New South Wales) heavy vehicle distance based road user charge would raise an additional A$100 million (US$104 million) a year for NSW from out of state trucks using NSW roads, if it replaced heavy vehicle registration fees. That's because a significant amount of km are driven on NSW roads by non-NSW registered trucks.

A NSW only heavy vehicle weight and distance road user charge priced to fully meet the marginal costs of heavy vehicle road use, would raise A$1 billion per annum in revenue (this would also replace fuel tax for heavy vehicles).

The remainder would come by charging light vehicles across the rest of the state, including the non-motorway network in Sydney.

While administrative costs are estimated to cost anywhere between 10 and 25%, so charges would have to recover A$2.5 billion in revenue AND an additional A$250-A$750 million.

This is a common argument against road pricing, except the report points out that introducing road pricing more than offsets the administrative costs by:

- Eliminating the deadweight excess burden of existing taxes would save 26% of the cost of that revenue now from the economy. That net gain does not accrue to the Treasury of the state government, but is distributed throughout the economy.

- Significantly reducing the costs of congestion, producing gains of hundreds of millions per annum in time savings.

Congestion pricing, if applied on a network wide basis, charging by time, place and distance, set at the rates above to efficiency target congestion would also generate another A$2 billion (US$2.1 billion) in additional net revenue.

Instead of network pricing, cordon pricing (applied at A$10 to enter any of Sydney's 13 business districts) could generate less revenue, but risks creating congestion outside those districts and is considered to not be suitable for Sydney.

Expanding tolling on major routes is also seen as unsuitable because it would divert traffic onto other routes.

The conclusion from the report is that there are considerable merits in shifting away from current forms of motoring taxation to road pricing.

The first step proposed is to expand tolling on Sydney motorways at prices that reflect current averages on other tolled motorways. The report proposes it be followed by renegotiations of existing concessions so that toll pricing can target peaks and have off peak discounts. It also proposes serious consideration be given to a NSW only heavy vehicle distance charging system, which if possible is consistent with a future Australia wide system. This should be followed by piloting of distance charging as an option to start a transition from existing taxes.

My view

This report is one of the more economically sound pieces of analysis on road pricing as complete replacement source of revenue from road users I have seen in some time. It is more telling that the report actually came to this conclusion not as a road pricing study, but as a wider economic study into the entire taxation, expenditure and state treasury administrative, procedural and governance framework.

It moves beyond the purely financial analysis of taxation, that almost always demonstrates that existing taxes have low external costs, by raising the deadweight cost of taxation and the external benefits that other forms of charging can generate by addressing inefficiencies such as congestion.

The point is this. Existing motoring taxes create distortions of their own, because they do not reflect the infrastructure and economic costs of providing roads. They tax ownership and sale of vehicles (and although not included in the analysis, fuel tax does not charge road use).

Road pricing has an administrative cost higher than existing revenue sources, but its economic cost is lower and on top of that it can create net economic benefits by reducing congestion and road damage, because of changes in behaviour.

The steps proposed to move forward are worthy of further consideration. Heavy vehicle charges would be a logical and manageable step forward that would generate most of the road damage reduction benefits, a few congestion reduction benefits, but also help de-risk a wider transition. Expanding tolls in Sydney would appear easy, but would need to be done in a way to minimise diversion risk. The bigger leap towards shifting cars to distance charging should be done through a voluntary system to start with.

The one yawning gap in this report is fuel tax, which in unsurprising as it is levied at the Federal level, so is a Federal problem (states get a share through grants from the Federal government rather than directly receiving tax revenue). Fuel tax is likely to create its own deadweight burdens, although it arguably has modest positive impacts on environmental outcomes.

It would be a shame if politics means that nothing is done about the road charging portion of this report in New South Wales. However, whatever happens there I hope the deadweight burden of taxation is weighed into assessment of motoring taxes elsewhere. What this report does is to help place Australia in the ranks of countries which are seriously considering the full economic impacts of existing forms of taxation of road use. Let the debate continue...

Other interesting facts from the report

A$138 million (US$143 million) was raised from tolls on state roads (largely Sydney Harbour Bridge). This revenue has been growing at a rate of 9.7% per annum (nominal) over 10 years.

A$87 million (US$90 million) was raised from "plate fees" on state roads, meaning charges for those not paying tolls with accounts, but with surcharges after their number plates were detected on free flowing toll roads. This has been growing at 12.4% per annum (nominal) over 10 years.

A$1.7428 billion (US$1.79 billion) was raised from motor vehicle registration and ownership taxes in the state in the year 2010-11. Note the state has a population of 7.3 million with 5.6 million registered vehicles.

A$95 million (US$99 million) was raised from the parking space levy which is a tax on off-street commercial parking in specific parts of Sydney. Effectively a workplace parking levy of the kind sometimes proposed as an alternative to congestion pricing.

A list of highway PFPs (Privately Financed Projects) in the state is presented in Table 1.4.4 (7 toll roads) for those interested.

Tuesday, 3 April 2012

3 May 2012 will be the London Mayoral election when Mayor Boris Johnson (Conservative) will try for a second term. In 2008 he defeated Labour's Ken Livingstone, who is well known for having introduced the congestion charge to London.

As a London resident, below are the policies of all of the Mayoral candidates in this year's election on the congestion charge, road pricing and tolling specifically. I am listing the candidates in their order of expected success. The election is undertaken using a preferential system. Voters choose their first preference candidate and are free to choose a second preference if the first preference is not one of the top two candidates. If no candidate gets over 50% of the vote, the second preferences of all voters are added to the top two candidates (unless the first preference was one of them). It is widely expected the top two contenders (based on polling) will be the incumbent, Boris Johnson and Ken Livingstone, again. So what are their policies?

Boris Johnson - Conservative

During his term, Boris consulted on whether to abolish the Western Extension of the congestion charge zone and because of the result of that consultation, he did abolish it, whilst raising the price of the central zone to £10 (US$15.90). He also introduced a number of changes including automatic detection based charging. Instead of having to consciously declare for every entry into the charging zone (or prepurchase a week, month or year in advance), a motorist can register (for a fee) and be billed for every occasion only, which is a considerable saving. In addition, those who register for this system get a £1 discount per day. In short, this has benefited those driving in the former Western extension and those who drive regularly into the charging zone in terms of convenience, although the price has gone up in the central zone (which may be seen as reasonable to maintain a consistent level of demand suppression).

Boris's policy on the congestion charge is basically business as usual. He has no plans to expand it in his next term, although road pricing is a long term option in the Mayor's transport strategy (which is no change from before). The manifesto on transport (PDF) is here.

He promises to never expand the charge London wide or introduce a £25 charge on "family cars" (a reference to policies promoted by other candidates).

Nothing ambitious there, but not surprising in the current economic environment.

A minor additional policy on tolls is in relation to the residents' discount applying to the central government owned Dartford Crossing which is to call for "residents within Greater London who live close to the Dartford Crossing – notably those living in Bexley and Havering - to be given the same discount on the Dartford toll as residents of Dartford and Thurrock".

No mention of tolls for any new Thames Crossings, although they are likely to be an option for the proposed Silvertown Crossing.

Conclusion: Expect no change from Boris. He doesn't promise no increase in congestion charge, and he doesn't promise no toll on a new Thames Crossing, but it is difficult to promise everything you wont do! No appetite for anything radical on the congestion charge, but also none to abolish it!

Ken Livingstone - Labour

Ken introduced the Western extension of the congestion charge, but his manifesto (PDF) says he has promised not to reintroduce it because to do so would be "too expensive", as would his previous pledge of introduce a £25 charge on so-called "gas-guzzlers". He has promised to freeze the congestion charge at current prices for four years. So he may even look as being less interested in road pricing than Boris Johnson. This could be a tacit sign that Ken recognises that there are few votes in expanding congestion charging during an economic slowdown.

There is one interesting related policy. He supports a smart parking system similar to the trial in San Francisco being applied to London which I wrote about last year. That is a good idea. It requires work with boroughs, but by providing real time information about parking availability, and adjusting parking to demand, it could improve access for motorists, and also reduce congestion.

Conclusion: Ken is getting more conservative. This part of his transport policy is almost identical to Boris. His parking idea has a low profile, but is a worthwhile idea that should be advanced.

Brian Paddick - Liberal Democrats

Brian came third to Boris and Ken in 2008, and given the Liberal Democrats are in coalition with the Conservatives at the central government level, it may be more interesting whether his views are closest to Ken's or Boris's. He appears not to have a transport manifesto out yet, and his website makes no reference to the congestion charge at all. With a month to go, it's getting late. The Liberal Democrats at the 2010 national election supported a shift to national road pricing, is Brian Paddick getting cold feet about embracing that at a London level, or will it just be business as usual as well. Asked by the BBC as to who his favourite Londoner is, he answered "Sherlock Holmes". Hmmm.

UPDATE: The debate on local radio station, LBC, last night had Brian apparently calling for the congestion charge to be "reviewed" because it "isn't working". That, of course, could result in any outcome ranging from abolition to expansion.

UPDATE 2: Liberal Democrat London Assembly Leader Caroline Pidgeon elaborates in the Guardian that the Liberal Democrats want to have the congestion charge vary by time of day, so that it targets the most congested periods, and that the charge should increase in line with any public transport fare increases. This would be a notable improvement, and one that might even be palatable, although the profile of congestion in the central zone is unlike typical U shaped demand curves in most cities. Bear in mind that the charge is effectively a day pass for unlimited access. Would someone paying offpeak only be allowed access for a more limited time? More thinking needed there, but it is definitely a step forward.

Conclusion: The party policy does appear to be to make some well motivated adjustments, it is unclear whether it will make much difference in the context of this scheme. Still, it seems to be perhaps the most economically rational policy of them all.

Jenny Jones - Greens

To her credit, the Green Party candidate Jenny Jones has been open about the party's (and her) policy which is not afraid of expanding congestion charging. This is by far the most radical policy on road pricing on offer.

Unsurprisingly this isn't about spending any money on roads or replacing other taxes. It is about using road pricing as a tool to penalise and deter road use, not about economically efficient pricing.

The party commissioned a report from an environmentalist planning firm called Eco-Logica that claimed London wide charging could raise £1.4 billion (US$2.23 billion) which would be used to cut public transport fares. Of course that would likely be opposed by most motorists, and would risk dramatically increase demand for public transport that would mean severe overcrowding if fare reductions don't get matched by capacity increases (difficult to do quickly other than for buses). A simple objective of using road pricing to raise revenue and deter road use, much wider than targeting congestion. She said on the BBC last weekend, the proposed charge would be a London wide distance charge averaging 32p (US$0.51) per mile, described as a "smart pay as you drive scheme". She also said it would replace the current congestion charge.

Clearly, the intention here is to reduce overall traffic levels, increase public transport, cycling and walking mode shares and achieve a quantum reduction in the use of the road network. Given much transport policy has had similar such objectives for some time, this is not quite as radical as some may think. However, it is political dynamite for motorists, and small business owners who may use cars or light commercial vehicles frequently. Still, it is not wrong to think that such an idea, if it did at least in part offset other taxes, might achieve a lot for London in reducing congestion and the environmental impacts of road use. Using it just to raise more taxes and reduce externalities is, of course, a understandably left wing view of road pricing.

Conclusion:Courageous, logical from the Green "world view", but punishing to car owners, and the light commercial delivery and freight sectors. However, it may come into its own in 10-20 years time, although perhaps to replace other taxes rather than simply be a new one.

Carlos Cortiglia - British National Party

Carlos has been hitherto unknown, his views on the congestion charge are equally so. Given he represents a party that is considered to be nationalist, with socialist economic policies, it is unlikely road pricing is on his radar. A repeated search has found no policy on his blog or the BNP website.

UPDATE: Carlos wants to abolish the congestion charge.

Conclusion: Clear and simple and populist

Lawrence Webb - UK Independent Party

Lawrence has also been unknown. However, he does have policies. The Low Emission Zone, which is often ignored, but which essentially charges any vehicles over 3.5 tonnes and some light commercial vehicles that don't meet minimal emission standards, would not have tightened standards. He says he would "scrap the congestion charge cameras", which is, in effect, to scrap the congestion charge. I don't know if he thinks he can replace it with other technology, but he does suggest using the cameras to enforce mandatory third party insurance and vehicle excise duty.

UKIP sometimes portrays itself as a party of smaller government and in favour of business and growth, so it is interesting (although not surprising) that it is rejecting the economic rationalist view of road pricing, in favour of populism. Lawrence is the only candidate clearly opposing road pricing.

Conclusion: The only candidate opposing the congestion charge, albeit with no policy justification for the stance. Given he is now polling at levels rivalling Jenny Jones, could it mean that London ends up being balanced between opponents of charging, and advocates of more charging?

Siobhan Benita - Independent

Siobhan is a newcomer as well, although she admitted on the BBC that she previously supported Ken. Her website says she wont change the area covered by the congestion charge, but nothing else. Fair to presume she joins the two main candidates in supporting no change to the status quo.

Conclusion: Nothing radical here either, status quo.

Overall conclusion

It is apparent that politics around London's congestion charge have matured somewhat. One candidate is campaigning to get rid of it, and he is unlikely to win. Both major candidates are campaigning on little real change to the current scheme. One candidate is pushing for radical expansion, but she is unlikely to win either. In short, London's congestion charge is now accepted as an integral part of London's traffic management system. It is fair to say that expansion is not politically tenable at present, because there is little appetite to make people pay more, but similarly the value of the existing scheme is now not doubted.

Footnote

It is important to note the election is also for the London Assembly, which has some powers as well. That involves electing representatives in constituencies and voting for parties, so there is some proportionality. It is here that the smaller parties, like the Liberal Democrats, Greens, UKIP and BNP can get elected. What may be more influential is if the Green Party does well and gets more representation, given its radical view of the charge. It is likely to do well from voters disenchanted with the Liberal Democrats and Labour, whereas UKIP's opposition may attract some traditional Conservative voters. The London Assembly can't stop the Mayor, but can slow him/her down.

If it does end up being one of the two main candidates that get elected, expect little change in the next four years for the congestion charge or road pricing in London. There are quite a lot of transport policy issues in this election, ranging from policies on public transport fares, support for minor investments in road improvements, automating the Underground and future airport expansion (or not). These all are likely to influence how Londoners vote. It would appear that the congestion charge is not really one of those issues anymore.

Given the politics and profile around its introduction, that is quite remarkable. The congestion charge is part of London life and accepted as mainstream policy.

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What is road pricing?

Road pricing is any system that directly charges motorists for the use of a road or network of roads. Traditionally it has meant tolls on single routes, particularly crossings such as bridges or tunnels. More recently it also includes area, cordon and zone pricing of urban areas, and distance and time based charging of whole networks. It does not include fuel or tyre taxes, or taxes on ownership or purchase of road vehicles.

About Me

I have worked over 12 years in public policy and management consultancy in road pricing across the world, focusing on policy, economics, strategy and business case development and revision. If you have any questions, or are seeking consultancy on strategy in road pricing, email me at roadpricing at yahoo dot com You may also follow me on Twitter under the name #roadpricing